UBS Wealth CIO says hard to repeat 2017's double-digit stock gains

LONDON - One of the world’s biggest wealth managers predicted on Thursday that global equities would extend their rally into 2018 thanks to solid earnings prospects in the tech sector, dismissing talk that equity markets had hit bubble territory.

“There’s a lot of talk about: Are we in an equity bubble? I don’t think we are, for a few reasons,” said Haefele.

“The relatively slow growth in the world and relatively low interest rates can persist for some time, and in a gradually rising environment equities can perform pretty well.”

Strong tech earnings in the current quarter were a sign that the rally in the sector could continue for some time, said Haefele. But the overall recent strong performance of global stocks meant some future returns had been brought forward.

“It would be hard to do double digits” he said, adding that any sharp rise in inflation that forced the U.S. Federal Reserve and other central banks to step up interest rate rises posed the biggest risk to their outlook of single-digit equity gains in 2018.

Indexes in the United States .DJI.SPX.IXIC and Europe .FTEU3 recently scaled record highs, while Japan's Nikkei .N225 climbed to a 26-year peak.

Haefele also said Britain’s decision to leave the European Union had sparked interest among his clients in investing in the British property markets.

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“Globally, our clients are interested in UK real estate with a focus on the high end, and - if it sells off - is that a good time to buy?”

The pound - having absorbed a lot of the initial Brexit shock - looked undervalued on a purchasing power parity basis, he said, adding he did not expect the currency to fall further in the near term.

“If you think the pound is going to be relatively stable and some of that weakness has been priced into the FTSE, we’re underweight UK stocks versus euro zone stocks because we think the earnings growth is going to help Europe and the currency adjustment is probably over for Britain.”

However, the pound could weaken again once Brexit drew closer in 2019, he added.

Haefele also said that:

* Europe had not solved its long-term problems, but strong growth had given the bloc more time to work on them. Meanwhile Brexit had brought home to Europe the need to make changes. “There is a belief that (French President Emmanuel) Macron and (German Chancellor Angela) Merkel - once the ruling coalition has been resolved in Germany - will progress towards a more united Europe.”

* Ultra High Net Worth families had shown “tremendous interest” in cryptocurrencies, said Haefele, adding educational lunches on the topic were by far the wealth management firm’s most oversubscribed events.

UBS Wealth Management did not offer any exposure to Bitcoin. “This is one in a long string of new technologies that exploit a regulatory arbitrage that eventually gets closed by governments,” he said.

Haefele predicted an “amazing future” for blockchain technology as a means of payment and other applications.